Why Italy is facing a looming crisis

Markets are rebounding, fears are fading, and people are wondering whether Britain will really leave the European Union after all. While incoming Prime Minister Theresa May claims that “Brexit means Brexit,” she originally opposed it. And, more to the point, it still isn’t clear when she might actually get around to initiating Britain’s divorce proceedings with Europe. The longer she waits, though, the more the uncertainty might hurt their economy—in which case, staying might start to look a lot better than going. Brexit, then, might end up being much ado about a non-binding referendum.

But that doesn’t mean all is quiet on the financial front. Whether it happens or not, Brexit has reminded us that Europe might have done enough to stop economics from pulling at its seams, but not politics. And it isn’t just investors who have noticed. Voters in other countries have too. They have seen Britain put the E.U. to a metaphorical show of hands, and want to do the same. So if it’s not Brexit—or especially if it is—then it’ll just be another portmanteau.

Maybe “Italeave” or “Itexit.” Whatever it is, though, it’ll be a lot more serious if it’s a country that, unlike Britain, uses the euro. Then we won’t be talking about just renegotiating some trade deals. We’ll be talking about what economist Barry Eichengreen has called the mother-of-all financial crises. That’s because everyone would try to get their euros out of the banks before they could get turned into, say, lira that wouldn’t be worth anywhere near as much. And that’s why Britain’s vote actually pushed Italy into a deeper hole than any other country. This is where the battle for the euro, the European Union, and maybe even a United States of Europe won’t be won, but …